Ready for OPEC’s Shocking Next Move? Brace Yourself!

Welcome back to another source of energy.

ExxonMobil and Chevron shareholders overwhelmingly supported their boards of directors yesterday against the proposals of the climate shareholders. Remember the proxy war between Engine No. 1 and Exxon? It feels like a different era. I’d like to hear from shareholders, so please write to us.

Oil prices are falling again, just days before this weekend’s OPEC+ meetings in Vienna. International benchmark Brent oil settled at $72.60 a barrel, close to its lowest price since 2021. Oil prices have lost nearly 15% since Saudi Arabia surprised the market in April by announcing further cuts in oil. offer. The kingdom has taken some criticism for that decision, but consider where oil prices would be today if Riyadh had not made the move. What will the cartel do at this weekend’s meeting? This is our first note.

Reports on OPEC, however, have taken a deeply sour turn, with the prohibition of several journalists from coverage of this weekend’s meeting. This is an embarrassment to the group.

Our second note is about the big debt ceiling deal in the US and how Democratic Senator Joe Manchin managed to get approval for the Mountain Valley pipeline into the deal. Aime Williams, whose recent trip through West Virginia, Manchin’s coal-rich home state it is a must-readexplains the policy.

Data Drill Resumes Rising Global Orders for Offshore Wind Turbines.

Thanks for reading. — Derek

What will OPEC+ do?

Down 8% in the last week alone, oil prices are not behaving as the world’s major producers would like, and OPEC production cuts are not solving the problem. Saudi Arabia and its partners have announced two quota cuts since October. But Brent has since fallen more than 20%. Oil’s highs near $130 a barrel, reached last year after Russia’s full-scale invasion of Ukraine, appear to be a long time coming.

So what will OPEC+ be doing this weekend? Given the recent sell-off, deeper cuts will be considered. OPEC’s leadership – read Saudi Arabia – has a penchant for “active management and strives to ensure the group is not overtaken by macro headwinds or tightening market sentiment,” noted Helima Croft, head of global commodity strategy at RBC Capital Markets, this week. The fact that OPEC meets in person in Vienna makes another policy change plausible.

Meanwhile, Saudi Energy Minister Prince Abdulaziz bin Salman has done little to suppress any impression that it might prompt another surprise. Speaking in Qatar last week, he reiterated his warning that “speculators” in the market—hedge fund investors and other paper investors who have built up short positions—”will get angry.” “I’d just tell them to be careful,” he said.

However, Croft does not rule out that OPEC will get away with it. This is also the consensus of other analysts who follow the group closely. The cuts announced in April have barely had time to take effect and, in any case, most forecasters expect a significant increase in global oil consumption by the end of the year, tightening the balance between supply and demand. Patience may be OPEC’s best move.

There is also some confusion over how much oil Russia is producing, not helped by the Kremlin’s secrecy over the data. Russian exports peaked again in April, according to the International Energy Agency. But OilX, a data arm of consultancy Energy Aspects, believes production has declined by more than 500,000 barrels a day in recent weeks. Refinery maintenance may be a reason.

But the cuts that Moscow promised months ago in response to the G7 price cap, and which failed to materialize during the Russian winter, could now be seriously underway, said Viktor Katona, chief crude oil analyst at Kpler. another commodity data provider. He believes Russian production has dropped by 350,000 barrels a day since February.

And deeper cuts now would also risk spooking a market that has been wracked in recent weeks by US banking woes, the debt ceiling crisis and mixed signals from the Chinese and European economies.

“They’re trapped in a rock and in a difficult place,” said Amrita Sen, head of research at Energy Aspects. “If they don’t cut, shorts can drive prices down. Or, if they cut, the market might think demand must be weak and sell off regardless. It’s a very difficult decision given that the cuts have only just begun and many of the [recent] the decline in the price of oil is linked to the macro [policy], which is out of OPEC hands. As of now, we do not expect any change in policy.”

(Derek Brower)

“Prime Minister” Joe Manchin is poised to emerge victorious in the fight over the debt ceiling

The catastrophic turmoil in global financial markets looks likely to be averted as President Joe Biden and Republicans on Capitol Hill look to close their last-minute debt ceiling deal to avoid an unprecedented US default.

But there is a big winner in Washington: the man widely known as “Prime Minister” Joe Manchin, a reference to the extraordinary influence he wields in a sharply divided Senate.

The bill Biden and Republicans agreed to authorizes permits for the controversial and much-delayed Mountain Valley Pipeline project, which is expected to carry natural gas about 300 miles from the Marcellus shale fields in West Virginia to other parts of the state.

Also under wraps are some minor changes to the federal permitting process, including policies limiting the environmental review process under the National Environmental Policy Act to two years. This provision was included in a bill that Manchin unsuccessfully attempted to enforce. to approve. The senator tried to use the political capital he gained by voting for the Inflation Reduction Act, but it wasn’t enough to push the cap on the permit bill.

The pipeline, which has long been a top political priority for Manchin, has been criticized by environmental and climate groups and mired in lawsuits.

The White House’s decision to pass the bill regardless led to protests from climate groups, one of which has previously estimated that the pipeline route would cross rivers and streams at 1,146 points and disrupt 28 acres of wetlands during construction.

“This deal excludes local voices from the process and shorts out laws put in place to protect the public,” said Manish Bapna, chief executive officer of the Natural Resources Defense Council in Washington. “Lock future generations in dependence on fossil fuels.”

Manchin has not publicly threatened to withhold his vote on a debt ceiling deal on furlough issues, but in West Virginia, his support for Biden’s IRA big green spending has left him with an exposed political flank for Republicans from attack.

Voters in the coal-dependent state have a complicated view of the IRA — while they generally like the idea of ​​green jobs, they dislike the Democrats and Biden.

When Manchin backed Biden’s IRA, his popularity in the state plummeted, according to to a survey. Now he faces a tough race in 2024, perhaps against the hugely popular and charismatic Republican Governor Jim Justice – and his pet bulldog puppy dog.

Conservative Republicans in the state are selling voters on the idea that Democrats want to close coal mines and take jobs away, and “they’re in bed with West Coast liberal elites who love awakened environmentalism,” John said Kilwein, professor of political science at West Virginia University.

Manchin has slowly drifted away from the IRA and has been hiding his climate credentials since his move. In recent months, he has spoken out about the importance of American oil, gas and coal and accused Biden of breaking his promises on protecting “energy security.”

The pipeline giveaway from the White House is an acknowledgment that in his home state, the last thing Manchin needs is to look like an opponent of fossil fuels — and if Democrats are to continue tackling climate change, they have need Manchin to win West Virginia. (Aime Williams)

Data tutorial

Global orders for new wind turbines hit a record in the first quarter of the year, with 23.5 gigawatts of activity, up nearly 30% from a year earlier, according to Wood Mackenzie. China accounted for more than half of the activity.

“What is encouraging is to see some areas outside of China starting to gain momentum,” said Luke Lewandowski, director of research at WoodMac. “Latin America had a record Q1, thanks to activity in Argentina and Brazil, and the US is seeing renewed confidence and order growth, thanks in part to the Inflation Reduction Act.”

Offshore wind orders were down year-on-year and accounted for just 13% of total orders. China’s Envision took the largest share of orders (3.6 GW), followed by Denmark’s Vestas and China’s Sany, according to WoodMac.

Strengths

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Energy Source is written and edited by Derek Brower, Myles McCormick, Justin Jacobs, Amanda Chu and Emily Goldberg. Reach us at energy.source@ft.com and follow us on Twitter at @FTEnergy. Stay updated on past editions of the newsletter Here.